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Why the Cash Converters share price rocketed 43% higher today

asx shares higher
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The best performer on the All Ordinaries index on Monday has been the Cash Converters International Ltd (ASX: CCV) share price.

The retail and personal loans company’s shares rocketed as much as 43% higher this morning to 21.5 cents.

They have since dropped back a touch, but are still up 27% at 19 cents at the time of writing.

Why is the Cash Converters share price on fire today?

Investors have been scrambling to buy the company’s shares after it provided an update on the Lynch class action.

This class action, which commenced over four years ago, was on behalf of Queensland borrowers who took out personal loans from the company’s subsidiaries between 2009 and 2013.

It related largely to excessive brokerage fees that were charged to vulnerable customers.

This morning the company announced that it has settled the class action and a Deed of Settlement has been exchanged by the parties.

What are the terms?

According to the release, the Lynch Settlement will see Cash Converters pay $42.5 million into a fund for distribution to members of the class action.

The payment will be made in two tranches. The first tranche of $32.5 million is to be paid within 21 days of execution of the deed of settlement. This payment will be made from its available cash.

After which, the second tranche of $10 million is to be paid on or before September 30 2020. 

The company advised that it “is pleased to bring this litigation to a close.” It also explained that the settlement “is without any admission of liability by Cash Converters.” The Lynch Settlement remains subject to court approval.

Should you invest?

I believe this was the last remaining class action the company was facing. So this is a positive day for it and will allow management to focus purely on the future at long last.

However, I wouldn’t be in a rush to invest just yet. I’d like to see a couple of years of solid profit growth before I’d consider an investment.

In the meantime, I see more value in retailers such as Accent Group Ltd (ASX: AX1) and Super Retail Group Ltd (ASX: SUL).

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Returns as of 6th October 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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